DMCC: Expanding horizon

Dharamsi Morarji Chemicals Company (DMCC), a company that recently turned its focus on speciality chemicals and engineered services, can look to get strong foothold in the domestic markets as India prepares to rein in the Chinese dragon.
The chemicals produced by DMCC finds its end use in various processes and industries like textile processing, dyes and pigments, pharmaceuticals intermediates, fertilisers and cosmetics.
Incorporated in 1919, DMCC was the first producer of Sulphuric Acid and Phosphate fertilizers in India. Until recently, it was known primarily as a fertilizer producer with over 75% of revenue from SSP.

Last year, as a strategy, it structured itself to Speciality Chemicals through the amalgamation of Borax Morarji with the listed company and ramping up of specialty chemicals business. The merger of Borax Morarji was done after the plant at Maharashtra’s Roha was running at its peak and looking at its large customer base in Gujarat. The spike in sulphuric acid prices came in handy as well.

With focused Research and Development efforts, processes for downstream sulphur-based chemicals were commercialized. Simultaneously, the Marketing team engaged with customers in India and overseas to meet their requirements. Through a painful restructuring process, it exited the manufacturing of fertilizers almost entirely, what is visible now is a culmination of efforts by the entire team: sustainable performance with zero dependence on Government policy, net foreign exchange earnings, and sales to over 25 countries in 5 continents. It now focuses on Sulphur and Ethanol chemistry.

During FY20, DMCL posted a PAT of Rs 23.89 crore on sales of Rs 187.66 crore and an EPS of Rs 12.62. For Q4FY20, it posted PAT of Rs 6.82 on sales of Rs 46.54 crore and an EPS of Rs 2.77.
Currently, the stock trades at a P/E of 6.6x and at 62% discount to its September 2018 high of Rs.210. The stock looks quite attractive at this level based on its performance parameters.
Going ahead, investors need to track sustainability of the spread on sulphuric acid sales, increase in specialty chemicals sales and commissioning of Dahej plant.

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